India’s 2022 Bond Yield Drops to Two-Week Low as Cash Increases

July 4 (Bloomberg) -- The yield on Indian bonds due 2022
fell to the lowest in more than two weeks on optimism improving
supply of cash in the banking system will spur demand for debt.

Local lenders’ daily borrowings from the central bank to
meet fund shortages fell to 108.8 billion rupees ($1.8 billion)
yesterday, the least since March 31, official data show. The
overnight interbank borrowing rate was at 6.35 percent today,
compared with 7 percent at the end of last week. The Fixed
Income Money Market and Derivatives Association widened a daily
trading band for local debt, according to its website, after
benchmark yields fell the most this week.

“The liquidity situation has improved and that’s providing
a boost for bond prices,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. in Mumbai.

The yield on the 8.15 percent notes due June 2022 slid nine
basis points, or 0.09 percentage point, to 7.60 percent in
Mumbai, according to the central bank’s trading system. That’s
the lowest level since June 19. The yield jumped 18 basis points
last month, the most since the securities were issued in June
2012, as the Indian rupee plunged 4.9 percent.

Cash in the banking system increased amid signs the
government is stepping up expenditure to boost economic growth.
India’s spending in the first two months of the fiscal year
ending March 2014 was 13.1 percent of the total budgeted
expenditure, compared with 12.8 percent in the same period a
year ago, government estimates showed last week.